Liability protection and aircraft partnerships

[Fearless Tower]

Is there an effective way of protecting your personal assets in an aircraft partnership?

Wife wants me to sell the 170 now that we have the Baron. I don't know that I'm quite ready to let it go and I won't get anything close to what I have in, so I am toying with the idea of selling half.

Aside from the usual partner pitfalls, my big concern is getting sued if the partner does something dumb and crashes the airplane into a playground full of kids.

For those of you in partnerships, how have you addressed this?

 

[DrMack]

Is there an effective way of protecting your personal assets in an aircraft partnership?

Wife wants me to sell the 170 now that we have the Baron. I don't know that I'm quite ready to let it go and I won't get anything close to what I have in, so I am toying with the idea of selling half.

Aside from the usual partner pitfalls, my big concern is getting sued if the partner does something dumb and crashes the airplane into a playground full of kids.

For those of you in partnerships, how have you addressed this?

Start by hiring a good lawyer and then ignore all other advice you might get here or anywhere else.

 

[kyleb]

Start by hiring a good lawyer and then ignore all other advice you might get here or anywhere else.

There's the possibility that someone has already done that and will post his/her experience. I'd like a good answer on the subject too - I've been thinking about a partnership in something fast and with 4 seats, but would like partners to make the math work.

 

[midlifeflyer]

In general (specifics will vary with the state in which the accident happens and a bunch of other factors, which is why personalized legal advice and perhaps accounting advice due to potential tax ramifications) is essential), the 4 best protections (but not a panacea) for a co-ownership are (in random order):

1. An LLC or other limited liability entity;
2. A good operating agreement that incorporates reasonable rules of conduct by the members with respect to aircraft use; and
3. A good insurance policy
4. The right people as co-owners

 

[weilke]

Good insurance is going to be the best defense. The ability of single purpose entity to pritect you fron the actions of a business partner vary by state and type of entity. If the plane crashes due to maintenance decisions you have made, the entity does nothing for you.

 

[Ken Ibold]

Good insurance is going to be the best defense. The ability of single purpose entity to pritect you fron the actions of a business partner vary by state and type of entity. If the plane crashes due to maintenance decisions you have made, the entity does nothing for you.

That's true. Generally speaking, the entity will only protect you from a claim of negligence in the operation of the aircraft by your partner(s). Anything else and you're hanging out there. AND, you have to do a whole lot of things right for even that umbrella to be extended to you. Arm's length usage rates, no co-mingling of funds, regular documented meetings of members/shareholders, etc. As has been said, seek professional advice.

Oh, and the continuing operation of the business enterprise has to be considered as well. Everything from the bank account to the accountant who does the taxes ...

 

[Lindberg]

Is there an effective way of protecting your personal assets in an aircraft partnership?

Why are you considering a partnership instead of simple co-ownership? There are good reasons to own an airplane through a business entity, but if you don't need a partnership to accomplish your goals, you might actually be creating liability exposure you wouldn't otherwise have.

 

[Ken Ibold]

Why are you considering a partnership instead of simple co-ownership? There are good reasons to own an airplane through a business entity, but if you don't need a partnership to accomplish your goals, you might actually be creating liability exposure you wouldn't otherwise have.

Yeah but ... with a co-ownership you have other cans of worms to feel through.

 

[Lindberg]

There's the possibility that someone has already done that and will post his/her experience. I'd like a good answer on the subject too - I've been thinking about a partnership in something fast and with 4 seats, but would like partners to make the math work.

There is no right answer to this question that applies in all (or even most) situations. There's also no guarantee that was the right solution for someone else will be the right solution for you. You can't even be sure that what someone else did was the right solution for him.

By posting here, you will get many wrong answers. There's already been several incorrect legal statements posted in this thread, and someone who comes here to ask this question probably isn't in a good position to separate the good advice from the bad. I see some of the same incorrect statements every time this topic comes up, and I haven't even been here very long.

Personally, if I were embarking on a similar endeavor, I'd come here for advice on managing the operational aspects and ask an attorney and/or accountant for advice on the legal and financial aspects.

 

[Fearless Tower]

Why are you considering a partnership instead of simple co-ownership? There are good reasons to own an airplane through a business entity, but if you don't need a partnership to accomplish your goals, you might actually be creating liability exposure you wouldn't otherwise have.

I was using the term partner loosely, not specifically as a business venture. I'm open to ideas.

 

[Fearless Tower]

Personally, if I were embarking on a similar endeavor, I'd come here for advice on managing the operational aspects and ask an attorney and/or accountant for advice on the legal and financial aspects.

Agreed. I'm just trying to get some general ideas before I go on the clock with a legal type.

 

[Lindberg]

I was using the term partner loosely, not specifically as a business venture. I'm open to ideas.

Your big concern, "getting sued if the partner does something dumb and crashes the airplane into a playground full of kids," counsels against a partnership. In general, a co-owner would not be liable for the sole negligence of another co-owner. Then again, if you maintain the plane, and it crashes because of a maintenance issue, you could be liable for your own negligence even if you were flying. On the flip side, if the plane is going to be used in any sort of business, then a corporation can provide a nice layer of insulation between you and the operation. Of course, in the case of a plane crash, everyone's going to be sued, corporation or not. That's why you need adequate insurance even if you have a great liability shield.

You specifically asked about liability, but there are many other factors that should also go into your decision of how to structure the ownership. Consider future transfers of interests, bringing in additional co-owners, alienation of your (or your co-owner's interest), what happens when one of you dies, how you make decisions about maintenance, storage, etc.

 

[poadeleted20]

Is there an effective way of protecting your personal assets in an aircraft partnership?

Protecting from liabiity for your own actions? No. From he actions of your partners? Yes. To find out what is possible and how to achieve it, find a good aviation attorney.

Aside from the usual partner pitfalls, my big concern is getting sued if the partner does something dumb and crashes the airplane into a playground full of kids.

Nothing can protect you from getting sued, but proper structuring can protect your personal assets as long as you had nothing to do with what happened, and a proper insurance policy can cover your legal defense costs. Again, get advice from an attorney who works in this field in your state.

 

[RotorAndWing]

Is there an effective way of protecting your personal assets in an aircraft partnership?

Wife wants me to sell the 170 now that we have the Baron. I don't know that I'm quite ready to let it go and I won't get anything close to what I have in, so I am toying with the idea of selling half.

Aside from the usual partner pitfalls, my big concern is getting sued if the partner does something dumb and crashes the airplane into a playground full of kids.

For those of you in partnerships, how have you addressed this?

Start by hiring a good lawyer and then ignore all other advice you might get here or anywhere else.

The best advice so far.

 

[weilke]

The other aspect to this is how high the risk from a particular plane is. Most of the liability exposure comes from passengers, a 6 seat plane used by one of your partners to transport business associates or customers is going to create more liability exposure than a 2 seat taildragger only used by your partner to hop to some fly-in fishing spot.

When one of my partners flies the plane for business, it is insured for 25mil (through 3 different companies). My worry about a plaintiff trying to reach for the couple of $$ I have in that situation is pretty limited.

Again, sufficient insurance that covers the proposed opration is going to be your best asset protection.

That or being poor (which can be part of an asset protection strategy).

 

[PPC1052]

This is going to be dependent on your own state's laws. In general terms, if your state permits it, and depending on what your state's laws on LLPs are, I would suggest a limited liability partnership. I do not wish to discuss in detail the reasons here in an open forum.

But as other said, regardless of the form of ownership, you are not going to protect yourself from your own personal negligence.

 

[Jimmy cooper]

Start by hiring a good lawyer and then ignore all other advice you might get here or anywhere else.

Ahhhhhhmen! best answer.

 

[midlifeflyer]

By posting here, you will get many wrong answers. There's already been several incorrect legal statements posted in this thread,

You have me a bit curious. After reading your post I went back and looked and didn't see much that was significantly off-base. Most were surprisingly good as statements of general principles, without the typical "incorporate and you'll be fine" response.

 

[weilke]

Most were surprisingly good as statements of general principles, without the typical "incorporate and you'll be fine" response.

Just to complete this thread, I'll have to add this:

Just create a Delaware LLC. In addition to protecting you from all liability that comes with your plane you also save yourself the sales-tax .

 

[AdamZ]

Just to complete this thread, I'll have to add this:

Just create a Delaware LLC. In addition to protecting you from all liability that comes with your plane you also save yourself the sales-tax .

mmm that is often a myth.

 

[weilke]

mmm that is often a myth.

Adam, please note the green font, the wink smiley and the context that this post was made in.

And it is correct when it comes to the sales-tax, what it doesn't protect you from is the use-tax and the penalties once the revenuers catch on to you .

 

[Jimmy cooper]

I had my Stearman in a delaware corp.( they advertise in TAP.) it worked very well. Liability wise I don't think so as a good attorney can go through a "corporate veil" pretty easily. I am not sure that deleware registration would help in a law suit. It's mainly for tax evasion which is why major corporations are registered there or overseas.

 

[poadeleted20]

It's mainly for tax evasion which is why major corporations are registered there or overseas.

While taxation is the main reason companies move overseas, it is not the main reason companies incorporate in Delaware. The principal reason companies incorporate in Delaware is that all the other companies are incorporated in Delaware. As a result, a) there is no question about which state's laws any legal actions will be judged under or which courts will handle the cases, and b) because all these business law issues are so well tested in the Delaware courts, everyone knows pretty much where they stand and what to expect. In essence, Delaware business law is the lingua franca of corporations.

 

[Jimmy cooper]

Deleware is and has been, for many years very favorable tax wise for major corporations. Many articles about this for many years also.

 

[weilke]

Deleware is and has been, for many years very favorable tax wise for major corporations. Many articles about this for many years also.

Locating your business in a tax and regulation friendly environment is not tax evasion. If you dont owe a tax, you are not evading it. You otoh use a DE entity to avoid paying a tax you owe, that is tax evasion.

 

[1600vw]

Fly-Baby by Ron Wanttaja. He started a club with this airplane and it was an active club for decades. I have wanted to do this and spoke with Ron quit a bit on this subject. This was called the single story Fly-Baby Club or something like this.
This club had it all worked out.

Tony

 

[PPC1052]

As a result, a) there is no question about which state's laws any legal actions will be judged under or which courts will handle the cases

No, this isn't correct. In any action, there may well be a question as to choice of law. That depends on a lot of factual issues, such as where the conduct giving rise to the claim occurred, where the damage occurred, where the relationship between the parties was centered, if there is a choice of law provision in the contract, etc. What the court looks to, assuming a garden variety state law claim (in other words, not an action based on some federal scheme, like patent law for instance) in order to decide choice of law depends on that forum state's choice of law rules.

Where you incorporate is a consideration as to where the corporation is deemed a citizen, and therefore where it may be sued, which may indirectly affect choice of law. But it doesn't end the analysis. And of course, just because a corporation was formed under the laws of one state does not preclude it from being sued in another state. That will depend on the long arm statutes of the forum in which the suit is filed, as long as the exercise of personal jurisdiction is within the bounds of due process permitted by the U.S. Supreme court, and the forum state's Supreme Court.

 

[Jimmy cooper]

Locating your business in a tax and regulation friendly environment is not tax evasion. If you dont owe a tax, you are not evading it. You otoh use a DE entity to avoid paying a tax you owe, that is tax evasion.

You don't have to be joe Stieglitz to know why major corporations base in Delaware and have long before some moved overseas. Delaware is a decided tax haven and has been for years. As for legal, powerful lobbyists and superb lawyers have created loopholes that allow major U.S, corps. To pay little or nothing . This leaves us common folks to take up the slack which is totally unfair. If you check the tax rates under Kennedy and Eisenhower, ( things were booming!) they were astronomical compared to today. The voters can change this but are ambivalent. Many are just misinformed.

 

[RotorAndWing]

You don't have to be joe Stieglitz to know why major corporations base in Delaware and have long before some moved overseas. Delaware is a decided tax haven and has been for years. As for legal, powerful lobbyists and superb lawyers have created loopholes that allow major U.S, corps. To pay little or nothing . This leaves us common folks to take up the slack which is totally unfair. If you check the tax rates under Kennedy and Eisenhower, ( things were booming!) they were astronomical compared to today. The voters can change this but are ambivalent. Many are just misinformed.

 

[Lindberg]

I had my Stearman in a delaware corp.( they advertise in TAP.) it worked very well. Liability wise I don't think so as a good attorney can go through a "corporate veil" pretty easily. I am not sure that deleware registration would help in a law suit. It's mainly for tax evasion which is why major corporations are registered there or overseas.

So you registered your plane through a Delaware corporation mainly for tax evasion, and you're going to admit that on the Internet?

 

[dans2992]

I think he meant "avoidance" not "evasion"

 

[weilke]

So you registered your plane through a Delaware corporation mainly for tax evasion, and you're going to admit that on the Internet?

....to then turn around and accuse major corps to incorporate in delaware for 'tax evasion' purposes

- federal corporate income tax applies in delaware,
- corps that have operations in other states still have to pay local sales tax for any of their sales there
- local operations that do business in other states have to register as 'foreign corporation' and are subject to local business taxes
- employers share of payroll taxes is no different in DE than any of the other states

Bwthdik, I just run a small corp that is active in 3 states.

 

[midlifeflyer]

While taxation is the main reason companies move overseas, it is not the main reason companies incorporate in Delaware. The principal reason companies incorporate in Delaware is that all the other companies are incorporated in Delaware. As a result, a) there is no question about which state's laws any legal actions will be judged under or which courts will handle the cases,

As PPC1052 said, that is completely incorrect. No flame intended but I'm very surprised it came from you.

No Ron, if a Delaware corporation does business in Utah, it will be Utah's laws that apply to it activities in Utah in almost any context (tort liability, employment law) other than those that deal with it's organizational existence (shareholder rights, dissolution, for example).

 

[weilke]

No Ron, if a Delaware corporation does business in Utah, it will be Utah's laws that apply to it activities in Utah in almost any context (tort liability, employment law) other than those that deal with it's organizational existence (shareholder rights, dissolution, for example).

I believe the main reason is the structured and established way to deal with shareholder issues. Also, as so many corps are organized in DE, mergers and acquisitions only involve one state regulator.

Nothing to do with torts, very little to do with taxes.

 

[denverpilot]

I've decided that my co-owners deserve all the free mental health care that they can sue out of me.

 

[garyb]

Locating your business in a tax and regulation friendly environment is not tax evasion. If you dont owe a tax, you are not evading it. You otoh use a DE entity to avoid paying a tax you owe, that is tax evasion.

Huh?
Go back and read your first sentence.

 

[weilke]

Huh?
Go back and read your first sentence.

I was addressing his actions. He owed the tax (in form of a use-tax) to his home state and was simply relying on the fact that for the longest time, state revenue departments were not very active in tracking down owners who based a plane in their state but had it registered through an entity out of state. A couple of years ago, FL aggresively went after those owners and matched things like the FAA database, DE corporate records and names of pilots living in their state.

If a commercial entity structures their operation in a way that they dont owe a particular tax, it is not tax evasion. Yes, this can include structures that keep profits abroad (e.g. in ireland), but as long as all the right boxes are filled in, the company does not owe the tax.

 

[Lindberg]

As PPC1052 said, that is completely incorrect. No flame intended but I'm very surprised it came from you.

No Ron, if a Delaware corporation does business in Utah, it will be Utah's laws that apply to it activities in Utah in almost any context (tort liability, employment law) other than those that deal with it's organizational existence (shareholder rights, dissolution, for example).

Probably over simplified on both counts. The only law that is guaranteed to apply is the law of the jurisdiction where any suit is filed. That jurisdiction's law will determine which jurisdiction's law applies to various aspects of a case.